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How Do Life Insurance Companies Determine My Risk Level?

When you buy a life insurance policy, you’ll have a contract that requires the insurance company to pay a predetermined amount to your beneficiaries when you die. For approval, an insurance underwriter will review the way that you live to establish your life expectancy. In addition, insurance companies attempt to bill you enough to cover the funds that they will eventually pay to your policy’s recipients.

Risk Factors

To determine your premium, the insurance company will assess your health. Keep in mind that you’ll likely pay more for insurance when certain risk factors are present in your life. For instance, smoking cigarettes or cigars will increase your insurance premiums. Insurance companies will also consider your personal health. Therefore, if you suffer from obesity or diabetes, then you should expect to pay more for insurance. Other factors that could result in a higher insurance premium include a family history of cancer or a personal cancer diagnosis.

Your hobbies may also cause you to pay a higher premium for your life insurance. Dangerous hobbies include riding motorcycles, skydiving and mountain climbing. If you’re in the military, then traditional life insurance companies will usually add a war clause, which denies coverage for death during acts of war, into your policy. However, military branches have insurance options available for soldiers.

Additional Insurance Premium Factors

Insurance companies will also determine your rates according to your age, health and gender. Before you can set up an insurance policy, you should expect to share your medical history with the company, and to cover you, they may require that you have a physical examination. Be sure to give the insurance company accurate information about your health because if you mislead your underwriter, then the company may cancel the insurance. Your death benefits can also be denied if you neglect to tell the insurance provider about risky behavior that could cause your death.

Uncontrollable Risk Factors

There are several risk factors that you cannot control such as your gender. According to research, women live longer than men. Therefore, they usually have lower life insurance rates. However, men may pay a lower amount on an annuity. Younger people will pay lower insurance premiums than older people since they are usually healthier. Also, your family history may affect your life insurance rates.

Life Insurance Tips

By knowing how insurance companies determine premiums, you can compare costs and coverage to find the best supplier. Keep in mind that life insurance will provide peace of mind for you and those you love.

What Will Life Insurance Pay For?

Most people know that they should carry life insurance in order to pay for final expenses to avoid leaving loved ones with these costs, but what exactly does life insurance cover? Life insurance coverage can vary widely, and many of the options related to what life insurance will pay for are completely up to the individual who purchases the policy.

When Are Benefits Paid?

Life insurance policies are intended to be used to cover final expenses after the death of the insured person. Both natural and accidental deaths are covered through most policies. However, most life insurance policies do not pay out benefits in the case of suicide.

Determining Factors For the Amount of Life Insurance Payments

The amount that beneficiaries receive after the death of the insured individual depends on the type of policy and the amount of coverage that was purchased. Level coverage provides a uniform benefit amount that will be paid at one time. For example, a $200,000 level life insurance policy always pays out the full $200,000. It does not matter how long a person had been insured before their death under this type of policy.

Decreasing term coverage pays a smaller amount each year throughout the life of the policy. For example, the policy may be worth $200,000 in the first year and $195,000 in the second year. A reduction in the policy of $5,000 may be made until the policy term is complete.

Increasing term coverage works in the opposite way. Coverage becomes greater as the term goes on. The full amount of the policy will be available at the end of the term.

The proceeds from a life insurance policy can be used for any bills that beneficiaries may have. The intention of the proceeds is to help loved ones pay for funeral expenses and debts that the deceased may have left behind. Families that rely on one member to support the family by earning an income may use the proceeds to pay for basic necessities after the primary wage earner is gone. Parents often purchase enough coverage to ensure that their children will be able to pay for college if they are gone.

Life insurance coverage amounts are up to the insured individual. Purchasing a policy that takes the future into consideration is important to avoid leaving loved ones struggling when a wage earner is gone.

Works Cited

http://www.moneysupermarket.com/life-insurance/guide/

http://www.superpages.com/supertips/life-insurance-cover.html

http://www.tdi.texas.gov/pubs/consumer/cb018.html

Is Life Insurance Really Worth It?

Not everyone thinks that life insurance is an important purchase to make for their family. There are some who are struggling financially and believe that different payment priorities need to take center stage. Others may believe that a better strategy to providing income after they pass away is to save the money they’d otherwise spend on premiums and allow it to earn interest or investment gains. Sadly, it’s likely that people who believe either of these scenarios is doing their family more harm than good.

Financial Trouble? You Need Insurance

When a family is facing financial struggles, it may be tempting to ignore optional insurance coverage, such as life insurance, in favor of paying bills or getting out of debt. However, life insurance is especially important to secure when you’re already struggling because it’s unlikely that your family will be able to sustain their current lifestyle without the benefit. In fact, with the loss of your income and no insurance proceeds to help them, they could lose everything. Even a small insurance policy with a modest death benefit can help your family get out of debt and keep their home while also providing funds to pay for your burial.

Save It and Risk Losing It

Who needs life insurance when you can save and invest the premiums, right? Wrong. Life insurance premiums are very low when you look at the amount of insurance they secure. Better yet, they generally provide that benefit to your family immediately. When you save the premiums and invest them not only do you run the risk of losing what you save in a bad investment, but it can take decades to accumulate the amount you’d secure with a death benefit—and there’s a good chance you’ll actually never reach that level.

There is no replacement for the power of a life insurance death benefit. With the policy proceeds your beneficiaries can gain financial independence that would otherwise be impossible. Your death benefit may help them pay for college, have income during retirement, get out of debt, or even save their home from foreclosure. Forgoing coverage could mean gambling with the health and happiness of your family after your death, which is a legacy no one wants to leave behind.

Does Life Insurance Differ From State to State?

Everyone needs life insurance in order to protect their loved ones after they are gone. However, understanding the different types of insurance that are available can be confusing. Getting a policy that provides the coverage needed requires individuals to inform themselves about the process of obtaining life insurance in their state of residence.

Uniform Attributes of Life Insurance

According to LifeInsurance.org, the types of life insurance that are available in each state are the same. Term life insurance is available for people who would like temporary coverage that is more cost-effective for tight budgets. Permanent life insurance options are available for people who are interested in investing in a policy that gains value and offers opportunities to borrow against the value of the policy.

Differences in Life Insurance

Life insurance is regulated by state agencies. The fact that this type of insurance is regulated on the state level instead of the federal level means that there are some differences in the availability of life insurance and the requirements for signing up for a policy.

QuickQuote.com explains that forms differ by state. Life insurance agencies will ask clients for a zip code in order to determine which state form should be filled out. Insurance guaranty associations also vary according to state. These associations are intended to back up life insurance policies in case something happens to the insurance agency that provides a policy to an individual. Individuals remain covered no matter what happens to the agency that originally sold the individual a policy. However, it is important to understand that these associations typically limit the amount of coverage that is guaranteed. Research about the protection offered in an individual’s state of residence should be done before a policy is purchased.

Each state has its own state insurance department that regulates insurance agencies. These departments are able to set forth guidelines that determine the requirements that a person has to meet in order to be allowed to sell life insurance. Protecting consumers and upholding laws related to life insurance are two of the most important responsibilities of state insurance departments.

Purchasing a life insurance policy requires individuals to be knowledgeable about state regulations. While protection is offered on the state level in case an insurance agency goes out of business, caps on coverage typically apply. Individuals can talk about differences in life insurance based on state with an insurance agent.

Do I Need to Insure My Kids?

The topic of life insurance for children is never a comfortable one to discuss. No parent wants to imagine the death of their child, much less what they might need money for after such an event. Unfortunately, ignoring the topic doesn’t make it go away and it doesn’t make life insurance for your children any less necessary.

Life Insurance Benefits Parents

No matter how old your children are when they pass on, there will be funeral and burial expenses to cover. Your savings might not be sufficient enough to create the service that appropriately memorializes your child’s life. A life insurance policy can support that expense for you.

If your child has an accident or illness that leaves behind significant medical bills, a life insurance policy can cover those, thus helping to reduce some of the stress you must deal with during that difficult time. If you have an older child who had outstanding loans that you cosigned for, a life insurance policy death benefit can pay for those as well.

Lastly, it’s important to consider how much your life will change should one of your children pass away. It’s very likely that you’ll miss a significant amount of work as you mourn and you may also need to seek the help of a professional to move you through the stages of grief. A life insurance policy can provide the funds you need during that difficult time.

Life Insurance Benefits Your Children

when you purchase life insurance on your children, you can take out a policy that is designed to help them throughout their adult life. If you purchase a permanent, or whole life, insurance policy the premium rates are locked in for the child’s whole life. When your child becomes an adult, you can transfer ownership of the policy to them and they can take over payments. These ultra-low premiums are extremely affordable and allow your child an easy way to provide a death benefit to their own children.

Whole or permanent life insurance policies also accrue cash values that your child can borrow against later on in life. The earlier you purchased these policies, the more cash value will be available when your child goes to college or decides to buy a home.

Contrary to what you may think, the purchase of a life insurance policy for your child isn’t morbid. It’s a responsible move that can greatly benefit your children later on in life.

What is Term Life Insurance?

Life insurance is an uncomfortable topic for some. While no one like to think about what will happen after their death, planning for that eventuality is a financially responsible decision and a way to ensure that your loved ones will be cared for. The best time to start shopping for life insurance is while you’re still young and healthy; this will ensure that you get the best policy for the lowest price. No matter your age, though, understanding how life insurance works can help you choose the right policy to suit your needs.

There are two primary types of life insurance policies: term life and universal or whole life. Of these, term life insurance is much more popular as it is quite affordable and will suit the needs of most insureds.

How Does Term Life Insurance Work?

Life insurance is designed to provide financial help to your loved ones after you pass away. You purchase a policy for a certain amount, and that amount is disbursed to your chosen recipients upon your death. This money can be used to cover funeral expenses, pay off lingering medical bills, providing living expenses to your family or even help fund a child’s college tuition.

Term life insurance policies are sold for specific terms, such as 10 years, 20 years or 30 years. If the insured passes away at any point during the term, the full amount of the policy is paid to the beneficiaries. This means that the beneficiaries receive the same amount of benefits whether the policyholder dies the year the policy is purchased or several years down the line. This differs from universal life insurance policies, which are investment vehicles that grow over time.

At the end of the policy term, the insured will need to either purchase a new term life policy or convert it into a universal policy. Different insurance policies will work differently, so it’s important to understand in advance what might happen to your policy at the end of its term.

How Much Does Term Life Insurance Cost?

The actual cost of a policy will depend in many factors, including your age, how healthy you are and the length of the term. It pays to comparison shop among multiple providers to find the best deal. In general, term policies are the cheapest form of life insurance, and they’re the most affordable for younger insureds, but affordable coverage for people of all ages is available from many providers.

What is Whole Life Insurance?

If you’re shopping for life insurance, you’ve probably noticed that policies are broken down into two main categories: term and whole (or permanent) life. The difference between these two types of coverage is extreme and must be understood before you can figure out which type of policy is right for you.

Whole Life Versus Term

Whole life policies are designed to provide death benefit coverage to the insured throughout his or her entire life as long as premiums are paid. That means that the policy does not need to be renewed, reissued, or underwritten ever again as long as the policyholder pays the premiums in full and on time. This differs from a term insurance policy which is designed to provide coverage only for a specified period of time, such as 10 years. Because whole life insurance policies guarantee death benefit for such a long stretch, they tend to be higher priced. It’s worth noting, however, that both types of policies are cheaper when they’re purchased by an insured at a young age, especially if he or she is in good health.

Other Differences

While the term of the coverage is the major difference between whole and term insurance policies, there are some other differences of note:

  • Whole life insurance policies accrue cash values that can be borrowed against. If a policy is canceled, any cash surrender value is given to the policy owner.
  • General whole life policies have a fixed interest rate applied to the portion of the premiums that are paid toward cash values.
  • Other types of permanent insurance policies include variable life, universal life, and equity indexed life. Each of these policies accrues cash values, just like a whole life policy. Their cash values may grow based on the underlying subaccount selected which may have returns that mimic the performance of certain stocks or indices.
  • Generally, once the insured reaches age 99 or older, the cash values will equal the death benefit and the policy will endow.

A whole life insurance policy offers a flexible, affordable way to ensure that your beneficiaries are provided for after you pass away. Purchasing a policy when you’re young allows you to lock in a less expensive rate due to your age and health which can help make the policy premium sustainable far into the future.

Why Buy Life Insurance?

In 2010, USA Today noted that 30 percent of American households had no life insurance protection. It doesn’t matter where you are in life, what your assets are, or what your employment situation is, life insurance is valuable for every household. To illustrate that point, here are 4 reasons why you may need to buy life insurance;

1. Someone cosigned a loan for you. Many students and singles believe that since they have no heirs, there’s no need for them to have life insurance coverage. However, if they have any loans, including student loans, that were cosigned by a parent or another relative, a life insurance policy will give the cosigner the means to pay for that outstanding loan after the death of student.

2. You are a stay-at-home spouse or parent. Individuals who stay home to take care of children and/or a home often think that because they don’t have an income, they don’t need a life insurance policy. It’s important to remember the service a stay-at-home parent or spouse provides to the other members of the household and how expensive it would be to outsource that service after the stay-at-home spouse passes away. For example, a stay-at-home parent with two children will likely be responsible for transportation of the children, cleaning the home, doing laundry, ironing, preparing meals and shopping. If that individual passes away, the surviving spouse would have a difficult time taking on those duties himself or herself and may need to hire someone in order to help out. The death benefit proceeds from the life insurance policy can pay for this expense and guarantee that the family’s lifestyle is sustained.

3. You will have funeral and burial expenses. It’s not pleasant to think about, but funerals and burials are expensive for the surviving family. That financial burden can be alleviated when you leave your family with a life insurance death benefit.

4. You want to make a difference. The death benefit of a life insurance policy doesn’t have to be left to relatives. You can choose to leave all or a portion of your death benefit to a charity that’s important to you.

A life insurance policy isn’t necessarily about your lifestyle now; it’s about the consequences after your death. Think about the people you’ll leave behind and design your policy to provide them with the resources they’ll need in order to move forward.